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Karolinska Development

Quarterly Report May 15, 2012

3168_10-q_2012-05-15_ce74c8b3-d555-4086-a591-0a93d5437041.pdf

Quarterly Report

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Karolinska Development AB (publ)

Corporate identity number 556707-5048

Interim report January – March 2012

CEO's comment

During the first quarter, we continued to invest in projects and innovations which we feel have significant medical and commercial potential. Among other things, we have established KDev Oncology, a new, focused oncology group wholly owned by Karolinska Development. We are confident that a collective approach in oncology will help us to recruit top talent, generate new pharmaceutical projects, attract co-investors and simplify negotiations with potential buyers and partners when projects are successful. We intend to apply this model to all new projects where we see opportunities to improve efficiencies.

Since it was established, KDev Oncology, which includes the existing portfolio company Akinion Pharmaceuticals, has also invested in GliGene, a company focused on the Hedgehog signaling pathway, which plays a fundamental role in the control of cell differentiation, growth and proliferation and is reactivated in cancer. The thesis is that this is not needed in normal adult tissue and that inhibition of this pathway could provide a selective way to treat cancer.

In addition, several of our portfolio companies have made clinical progress, including Pergamum and Akinion Pharmaceuticals. Pergamum dosed the last patient in a Phase II trial for prevention of post-surgical adhesions and initiated a Phase II trial with DPK-060 in outer ear infections, while Akinion Pharmaceuticals initiated a clinical Phase I/II trial with AKN-028 for treatment of acute myeloid leukemia (AML). After the reporting period, Pharmanest launched a Phase I trial with SHACT to develop a product for pain relief in connection with intrauterine device (IUD) insertion, an area where women today rarely have effective options despite a clear medical need. Pharmanest's ambition is to develop a method for immediate pain relief without the use of advanced equipment.

Lastly, the continuous evaluation and prioritization of our companies and projects has strengthened the portfolio. Our expectation that intense business development work will bear fruit in 2012 remains unchanged.

Torbjörn Bjerke Chief Executive Officer

Group

Summary of significant events during and after the first quarter

  • Akinion Pharmaceuticals initiated Phase I/II clinical study with AKN-028
  • Pergamum initiated Phase II trial with DPK-060 in outer ear infections
  • Pergamum completed patient recruitment to Phase II clinical trial for prevention of post-surgical adhesions
  • Karolinska Development formed KDev Oncology AB Carl Harald Janson appointed CEO
  • KDev Oncology invested in GliGene AB, a new company in the portfolio
  • Karolinska Development invested in Oss-Q AB, a new company in the portfolio
  • Pharmanest initiated Phase I trial with SHACT

Amounts in SEKm 2012 2011 2011 Jan-Mar Jan-Mar Full year Income statement Revenue 2.5 2.9 10.5 Profit/loss after tax -89.1 -37.5 -385.7 Earnings per share before and after dilution (SEK) -1.69 -1.04 -8.07 Balance sheet Cash and cash equivalents 171.5 141.8 163.3 Short-term investments 362.2 78.6 457.2 Share information Net asset value per share (SEK) (Note 5) 44.1 53.0 44.7 Share price, last trading day in the reporting period (SEK) 24.4 - 24.0 Portfolio information Investments in portfolio companies* (Note 7) 78.0 35.7 297.6 Of which investments not affecting cash flow (Note 7) 0.0 5.9 94.9 Valuation of total portfolio holdings (Note 2) 1,581.1 1,461.9 1,546.9

* Portfolio companies comprise subsidiaries, joint ventures, associated companies and other long-term securities holdings

Significant events during the first quarter

Akinion Pharmaceuticals initiated Phase I/II clinical study with AKN-028

Akinion Pharmaceuticals announced that the first patient has been dosed with AKN-028 in a two-part international multi-center study in patients with acute myeloid leukemia (AML). The first part is a dose-escalating study where AKN-028 is administered orally twice a day, until the maximum tolerated dose is established. The second part is a proof-of-concept study where approximately 20 patients will be treated. The trial will assess the safety, tolerability, pharmacokinetics and anti-leukemic effect of AKN-028.

Pergamum initiated Phase II trial with DPK-060 in outer ear infections

Pergamum announced that the first patient has been dosed in a double-blind randomized, placebo-controlled, multi-center study of DPK-060 for the treatment of patients with acute external otitis (swimmer's ear). The objectives of the Phase II trial are to assess the efficacy, local tolerability and safety of DPK-060 ear drops. The trial is expected to enroll approximately 70 patients. Karolinska Development is the majority owner of Pergamum.

Pergamum completed patient recruitment to Phase II clinical trial for prevention of post-surgical adhesions

Pergamum announced that the final patient has been dosed in a randomized Phase II trial of the therapeutic peptide PXL01 for prevention of post-surgical adhesions. In total, 138 patients who have undergone hand surgery have been included in this placebocontrolled, multi-center trial, which is evaluating the safety and efficacy of PXL01 to improve mobility and function in the hand after surgery.

Karolinska Development formed KDev Oncology AB – Carl Harald Janson appointed CEO

Karolinska Development announced the formation of KDev Oncology AB, the parent company of a new oncology group wholly owned by Karolinska Development. The ambition is to improve focus and efficiency in this important therapeutic area. The formation of KDev Oncology enables Karolinska Development and its co-investors to accumulate projects within a specific therapeutic area to obtain synergies and critical mass. KDev Oncology started with the existing portfolio company Akinion Pharmaceuticals. Carl Harald Janson has been appointed CEO of the company.

KDev Oncology invested in GliGene AB

GliGene AB, a new Swedish drug development company focusing on cancer diseases, received its first financing through a new share issue directed to KDev Oncology AB. The new share issue will enable GliGene to advance the discovery of new antagonists to the Hedgehog pathway. KDev Oncology is planning to invest a total of SEK 6.8m, which will give it an ownership interest in GliGene of 44 percent.

Karolinska Development invested in Oss-Q AB

Karolinska Development invested in Oss-Q AB, a company which is developing a novel implant technology and related bioceramic innovations based on research at Karolinska University Hospital and Uppsala University. Oss-Q's vision is to convert the technology into differentiating products for bone repair and to build a niche company in orthopedics with its own sales, beginning in skull surgery. The market for biomaterial products in orthopedics was worth more than EUR 1.25bn in 2011. After the investment, Karolinska Development owns 15.6 percent of Oss-Q.

Significant events after the end of the reporting period

Pharmanest initiates Phase I trial with SHACT

Pharmanest announced that the first patient has been dosed in an open label pharmacokinetic study with its drug candidate SHACT, a product developed for pain relief in connection with intrauterine device (IUD) insertion. The objective of this open study is to establish the pharmacokinetic properties of SHACT when applied in the cervix and uterus of women receiving an IUD. Secondary objectives are to evaluate safety and tolerability. A randomized, double blind Phase II study with about 200 patients is planned later this year.

The portfolio (as per May 14, 2012)

PHARMACEUTICALS Ownership* Concept
development
Lead
discovery
Lead
optimization
Preclinical
development
Phase I Phase II Phase III Launch
ONCOLOGY
Axelar AB 45%
Aprea AB 41%
Oncopeptides AB 43%
KDev Oncology AB (AKN-028) 90%
KDev Oncology AB (GliGene) 10%
DERMATOLOGY AND WOUND HEALING
Pergamum AB (DPK-060, atopic dermatitis) 62%
Pergamum AB (DPK-060, external otitis) 62%
Pergamum AB (PXL01) 62%
Pergamum AB (LL-37) 62%
WOMEN'S HEALTH
Dilafor AB 55%
Umecrine Mood AB 43%
Pharmanest AB 59%
INFECTIOUS DISEASE
Dilaforette AB 62%
Biosergen AS 60%
CARDIOVASCULAR
Athera Biotechnologies AB (Annexin A5) 65%
Athera Biotechnologies AB (PC-mAb) 65%
CNS
BioChromix Pharma AB 69%
Umecrine Cognition AB 54%
INFLAMMATION
NovaSAID AB 89%
ProNoxis AB 22%
OPHTHALMOLOGY
Clanotech AB 87%
TECHNOLOGY Ownership* Concept development Prototype Development Product Sales
IMPLANT
Promimic AB
29%
Oss-Q AB 16%
DIAGNOSTIKS
Athera Biotechnologies AB (CVDefine®)
65%
BioChromix AB 9%
PHARMACEUTICAL FORMULATION
Inhalation Sciences Sweden AB 72%
XSpray Microparticles AB 61%
Lipidor AB 40%
MEDICAL EQUIPMENT
NeoDynamics AB (Fourier/AS) 21%
NeoDynamics AB (Terapi/PRFA) 21%
FINANCIAL/PASSIVE INVESTMENTS Ownership* Concept
development
Lead
discovery
Lead
optimization
Preclinical
development
Phase I Phase II Phase III Launch
NephroGenex Inc. 1%
Pergamum AB (Laurantis Pharma Oy, cis-UCA dermatologi) 6%

Solid colored area = completed phase *Includes indirect ownership Shaded colored area = ongoing phase

Financial overview – Group

Revenue

Consolidated revenue during the first quarter 2012 amounted to SEK 2.5m, compared with SEK 2.9m in the same period in 2011. The change was primarily due to a decrease in services sold to portfolio companies.

Results

The Group's operating loss for the first quarter amounted to SEK -95.2m (-41.6), a change of SEK -53.6m year-on-year. The increased loss was mainly due to the portion of the change in fair value affecting income, which amounted to SEK -62.6m (-12.3) during the first quarter. As indicated in Note 2, the value of companies reported as subsidiaries appreciated by SEK 18.9m (4.2) during the first quarter. Changes in the fair value of subsidiaries are not recognized in the consolidated income statement and balance sheet, since the subsidiaries are consolidated and therefore are not measured at fair value.

The Group's loss before tax amounted to SEK -91.8m (-41.1).

Investments in portfolio companies

The Group's investments for the first quarter 2012 amounted to SEK 78.0m (35.7); see Note 7.

During the first quarter, SEK25.0m was invested in Axelar AB and SEK 19.0m in Athera Biotechnologies AB.

Financial position*

The Group's equity to total assets ratio was 93 (93) percent on 31 March 2012 and equity amounted to SEK 2,086.4m (2,173.9).

Cash, cash equivalents and short-term investments amounted to SEK 533.7m (620.6) on 31 March 2012.

Total assets amounted to SEK 2,252.3m (2,345.9) on 31 March 2012.

* Comparable figures refer to 31 December 2011

Financial overview– Parent Company

Revenue

The Parent Company's revenue during the first quarter amounted to SEK 0.8m (0.9).

Results

The Parent Company's operating loss for the first quarter amounted to SEK -15.3m (-19.0), an improvement of SEK 3.7m year-onyear. The improvement is mainly the result of lower external expenses and personnel expenses.

During the first quarter, the portfolio companies Actar AB and Limone AB were written down by SEK 1.5m and SEK 0.4m, respectively.

The net loss amounted to SEK -11.5m (-18.4).

Investments in portfolio companies (Note 7)

The Parent Company invested a total of SEK 42.7m (18.0) in subsidiaries during the first quarter. The largest investments (SEKm) were in Axelar AB at SEK 25.0m and Actar AB at SEK 10.0m.

The Parent Company invested SEK 35.3m (14.7) in associated companies and joint ventures. The largest investments (SEKm) were in Athera Biotechnologies AB at SEK 19.0m and Dilaforette Holding AB at SEK 10.0m.

The Parent Company invested SEK 0m (3.0) in other long-term securities holdings.

Information on risks and uncertainties

Parent Company and Group

Risks and uncertainties are primarily associated with investments in portfolio companies and the development of projects in these companies, as well as financial risks.

Future financing needs

Future investments in new and current portfolio companies will require capital. There is no guarantee that such capital can be obtained on favorable terms or that such capital can be obtained at all.

Valuation risks

Companies active in pharmaceutical development and medical technology at an early phase are, by their very nature, difficult to value, as lead times are very long and the development risks are high. Due to the uncertainty in these assessments, the estimated value of the portfolio may deviate substantially from the future generated value.

For a description of other risks and uncertainties, refer to the annual report 2011.

The CEO hereby certifies that this interim report gives a true and fair view of the operations, financial position and results of operations of the Parent Company and the Group and describes the material risks and uncertainties faced by the Parent Company and the companies included in the Group.

Solna, 15 May 2012

Torbjörn Bjerke CEO

Dates for publication of financial information

Interim report January – June 2012 23 August 2012
Interim report January – September 2012 22 November 2012
Year-end report January – December 2012 February 2013
Annual report 2012 April 2013

Karolinska Development is required to make public the information in this interim report in accordance with the Securities Market Act. The information was released for publication on 15 May 2012.

This interim report, together with additional information, is available on Karolinska Development's website, www.karolinskadevelopment.com

For further information, please contact:

Torbjörn Bjerke, CEO +46 (0) 72 744 41 23

Gunnar Casserstedt, CFO and Deputy CEO +46 (0) 73 068 37 00

See also www.karolinskadevelopment.com

Karolinska Development AB (publ) Fogdevreten 2A, SE-171 65 Solna, Sweden

This interim report has not been reviewed by the company's auditors.

Note: This report is a translation of the Swedish interim report. In the event of any discrepancies, the Swedish version shall prevail.

Financial reports

Condensed consolidated income statement

2012 2011 2011
Amounts in SEK 000 Note Jan-Mar Jan-Mar Full-year
Revenue 2,475 2,901 10,479
Other external expenses -20,004 -18,158 -104,056
Personnel costs -14,076 -13,631 -59,871
Depreciation and amortization of tangible and intangible non-current
assets
-991 -406 -3,431
Change in fair value of shares in joint ventures and associated companies 2 -62 383 -8,535 -236,621
Change in fair value of other long-term securities holdings 2 -199 -3,791 -7,175
Operating loss -95,178 -41,620 -400,675
Financial net 3 3,398 541 -4,985
Loss before tax 2 -91,780 -41,079 -405,660
Deferred taxes 2,661 3,535 19,987
Current taxes 0 0 0
NET LOSS FOR THE PERIOD -89,119 -37,544 -385,673
Attributable to:
Parent Company's shareholders -81,901 -34,537 -354,147
Non-controlling interests -7,218 -3,007 -31,526
TOTAL -89,119 -37,544 -385,673

Earnings per share

2012 2011 2011
Amounts in SEK 000 Note Jan-Mar Jan-Mar Full-year
Earnings per share attributable to Parent Company's shareholders,
weighted average, before and after dilution
-1.69 -1.04 -8.07
Number of shares, weighted average 5 48,531,417 33,331,417 43,908,951

Consolidated statement of comprehensive income

2012 2011 2011
Amounts in SEK 000
Note
Jan-Mar Jan-Mar Full-year
Net loss for the period -89,119 -37,544 -385,673
Total comprehensive income for the period -89,119 -37,544 -385,673
Attributable to:
Parent Company's shareholders -81,901 -34,537 -354,147
Non-controlling interests -7,218 -3,007 -31,526
TOTAL -89,119 -37,544 -385,673

Condensed consolidated statement of financial position

Amounts in SEK 000 Note 31 Mar 2012 31 Mar 2011 31 Dec 2011
Assets
Non-current assets
Intangible non-current assets 702,749 179,856 702,957
Tangible non-current assets 1,611 2,368 1,663
Shares in joint ventures and associated companies 2,4 953,164 1,199,924 980,276
Other long-term securities holdings 2,4 24,388 30,598 24,587
Loans receivable joint ventures and associated companies 26 715 83,525 3,675
Total non-current assets 1,708,627 1,496,271 1,713,158
Current assets
Accounts receivable 430 467 1,462
Other short-term receivables 5,264 7,065 8,757
Prepaid expenses and accrued income 4,246 13,002 1,886
Short-term investments 362,204 78,633 457,249
Cash and cash equivalents 171,513 141,841 163,347
Total current assets 543,657 241,008 632,701
TOTAL ASSETS 2,252,284 1,737,279 2,345,859
Equity and liabilities
Equity
Share capital 5 24,266 16,666 24,266
Share premium 1,768,179 1,212,611 1,768,179
Retained earnings including current period result 13,692 419,868 86,442
Equity attributable to Parent Company's shareholders 1,806,137 1,649,145 1,878,887
Non-controlling interests 280,290 30,486 295,041
Total equity 2,086,427 1,679,631 2,173,928
Long-term liabilities
Deferred taxes 140,925 30,660 143,586
Interest-bearing liabilities 2,000 2,000 2,000
Total long-term liabilities 142,925 32,660 145,586
Current liabilities
Accounts payable 8,015 7,224 9,563
Other short-term liabilities 2,616 4,838 2,796
Accrued expenses and prepaid income 12,301 12,926 13,986
Total current liabilities 22,932 24,988 26,345
Total liabilities 165,857 57,648 171,931
TOTAL EQUITY AND LIABILITIES 2,252,284 1,737,279 2,345,859

Condensed consolidated statement of changes in equity

Equity attributable to Parent Company's shareholders
Retained
earnings
incl. Non
Amounts in SEK 000 Note Share capital Share
premium
current
year result
Total controlling
interests
Total
equity
Opening equity at 1 Jan 2012 24,266 1,768,179 86,442 1,878,887 295,041 2,173,928
Net loss for the year -81,901 -81,901 -7,218 -89,119
Total comprehensive income for the
period 0 0 -81,901 -81,901 -7,218 -89,119
Change in non-controlling interests 9,151 9,151 -7,533 1,618
Closing equity at 31 March 2012 5 24,266 1,768,179 13,692 1,806,137 280,290 2,086,427
Opening equity at 1 Jan 2011 16,666 1,212,611 454,484 1,683,761 33,414 1,717,175
Net loss for the period -34,537 -34,537 -3,007 -37,544
Total comprehensive income for the
period 0 0 -34,537 -34,537 -3,007 -37,544
Change in non-controlling interests -79 -79 79 0
Closing equity at 31 March 2011 5 16,666 1,212,611 419,868 1,649,145 30,486 1,679,631
Opening equity at 1 Jan 2011 16,666 1,212,611 454,484 1,683,761 33,414 1,717,175
Net loss for the year -354,147 -354,147 -31,526 -385,673
Total comprehensive income for the year 0 0 -354,147 -354,147 -31,526 -385,673
Business combinations 0 222,834 222,834
Change in non-controlling interests -13,895 -13,895 70,319 56,424
New share issue 7,600 600,400 608,000 608,000
Issue costs -44,949 -44,949 -44,949
Warrants 117 117 117
Closing equity at 31 Dec 2011 5 24,266 1,768,179 86,442 1,878,887 295,041 2,173,928

Consolidated statement of cash flows

2012 2011
Amounts in SEK 000 Note Jan-Mar Jan-Mar
Operating activities
Operating loss -95,178 -41,620
Adjustments for depreciation, amortization and
impairment losses
991 406
Adjustments for changes in fair value 2 62,582 12,326
Realized change in value of short-term investments 3 350 0
Interest paid -12 -22
Interest received 481 383
Cash flow from operating activities before changes in
working capital -27,786 -28,527
Cash flow from changes in working capital
Increase (-)/Decrease (+) in operating receivables -468 1,102
Increase (+)/Decrease (-) in operating liabilities -3,413 4,731
Cash flow from operating activities -31,667 -22,694
Investing activities
Investments in intangible non-current assets -463 -216
Investments in tangible non-current assets -207 -143
Investments in shares in joint ventures and associated companies 7 -35 271 -8,788
Investments in other long-term securities 0 -3,002
Divestment of short-term investments 93 979 58,365
Sale of shares in joint ventures and associated companies 3 217 20,394
Loans provided to associated companies -23,040 -9,400
Cash flow from investing activities 38,215 57,210
Financing activities
Non-controlling interests' share of subsidiary issue 0
Cash flow from financing activities 1,618 0
Cash flow for the period 8,166 34,516
Cash and cash equivalents at beginning of period 163,347 107,325
CASH AND CASH EQUIVALENTS AT END OF PERIOD¹ 171,513 141,841

¹ In addition to cash and cash equivalents, the Group has at its disposal short-term investments amounting to SEK 362,204 thousand (78,633)

Condensed income statement for the Parent Company

2012 2011 2011
Amounts in SEK 000 Note Jan-Mar Jan-Mar Full-year
Net sales 834 852 2,467
Revenue 834 852 2,467
Other external expenses -7,899 -9,408 -32,174
Personnel costs
Depreciation and amortization of tangible and intangible
-6,306 -7,589 -32,066
assets -1 -17 -67
Impairment losses on shares in subsidiaries, joint ventures, associated
companies and other long-term securities holdings
-1 937 -2,797 -125,961
Result from sale of shares 0 0 6,239
Operating loss -15,309 -18,959 -181,562
Financial net 3 3,853 536 -6,183
NET LOSS FOR THE PERIOD -11,456 -18,423 -187,745

Statement of comprehensive income for the Parent Company

2012 2011 2011
Amounts in SEK 000
Note
Jan-Mar Jan-Mar Full-year
Net loss for the period -11,456 -18,423 -187,745
Total comprehensive income for the period -11,456 -18,423 -187,745
Attributable to:
Parent Company's shareholders -11,456 -18,423 -187,745
TOTAL -11,456 -18,423 -187,745

Condensed statement of financial position for the Parent Company

Amounts in SEK 000 Note 31 Mar 2012 31 Mar 2011 31 Dec 2011
Assets
Non-current assets
Tangible non-current assets 14 92 42
Shares in subsidiaries, joint ventures, associated companies and other
long-term securities holdings 955,853 743,870 879,819
Loans receivable joint ventures and associated companies 26,715 83,525 3,675
Other financial assets 2,178 1,693 2,080
Total non-current assets 984,760 829,180 885,616
Current assets
Accounts receivable 184 456 49
Group receivables 296 69 74
Other receivables 2,763 5,392 5,766
Prepaid expenses and accrued income 2,846 11,829 881
Short-term investments 339,992 78,633 457,249
Cash and cash equivalents 76,701 102,297 68,319
Total current assets 422,782 198,676 532,338
TOTAL ASSETS 1,407,542 1,027,856 1,417,954
Equity and liabilities
Equity
Restricted equity
Share capital 5 24,266 16,666 24,266
Unrestricted equity
Share premium reserve 1,778,253 1,222,685 1,778,253
Retained earnings -395,026 -207,281 -207,281
Net loss for the period -11,456 -18,423 -187,745
Total equity 1,396,037 1,013,647 1,407,493
Long-term liabilities
Pension obligations 2,178 1,693 2,080
Total long-term liabilities 2,178 1,693 2,080
Current liabilities
Accounts payable 2,486 2,417 807
Group liabilities 0 665 0
Other current liabilities 961 3,336 1,530
Accrued expenses and deferred income 5,880 6,098 6,044
Total current liabilities 9,327 12,516 8,381
Total liabilities 11,505 14,209 10,461
TOTAL EQUITY AND LIABILITIES 1,407,542 1,027,856 1,417,954

Pledged assets and contingent liabilities

Amounts in SEK 000 Note 31 Mar 2012 31 Mar 2011 31 Dec 2011
Pledged assets 6 2,178 4,529 2,080
Contingent liabilities 6 26,200 1,900 26,900
Total 28,378 6,429 28,980
Restricted equity Unrestricted equity
Share Share
premium premium
Amounts in SEK 000 Note Share capital reserve Note Share capital reserve
Opening equity at 1 Jan 2012 24,266 1,778,253 -207,281 -187,745 1,407,493
Appropriation of loss -187,745 187,745 0
Net loss for the period -11,456 -11,456
Closing equity at 31 Mar 2012 5 24,266 1,778,253 -395,026 -11,456 1,396,037
Opening equity at 1 Jan 2011 16,666 1,222,685 -95,932 -111,349 1,132,302
Appropriation of loss -111,349 111,349 0
Net loss for the period -18,423 -18,423
Closing equity at 31 Mar 2011 5 16,666 1,222,685 -207,281 -18,423 1,013,647
Opening equity at 1 Jan 2011 16,666 1,222,685 -95,932 -111,349 1,132,302
Appropriation of loss -111,349 111,349 0
Net loss for the period -187,745 -187,745
Total 16,666 1,222,685 -207,281 -187,745 844,325
New share issue 7,600 600,400 608,000
Issue costs -44,949 -44,949
Warrants 117 117
Closing equity at 31 Dec 2011 5 24,266 1,778,253 -207,281 -187,745 1,407,493

Condensed statement of changes in equity for the Parent Company

Notes to the financial reports

Note 1 Accounting principles

This report has been prepared in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting and the Annual Accounts Act. The accounting principles applied to the Group and the Parent Company correspond, unless otherwise stated below, to the accounting principles and valuation methods applied in the preparation of the previous annual report.

New and revised accounting principles 2012

The new or revised IFRS standards and interpretations by IFRIC have had no impact on the Group or, to the extent that these recommendations are applied to legal entities, on the Parent Company's income or financial position.

Definition of key ratios

Net asset value per share: Estimated fair value of the total portfolio, cash and cash equivalents, and financial assets less interestbearing liabilities in relation to the number of shares outstanding on the closing date.

Other definitions

First In Class: The first approved medicine with a defined mechanism for a specific target or a specific disease.

Portfolio companies: Companies owned fully or in part by Karolinska Development (subsidiaries, joint ventures, associated companies and other long-term securities holdings) which are active in pharmaceuticals, medtech, theranostics and formulation technology.

Fair value: The NASDAQ OMX regulations for issuers require companies listed on NASDAQ OMX to apply the International Financial Reporting Standards, IFRS, in their consolidated financial statements. The application of the standards allows groups of an investment company nature to apply so-called fair value in the calculation of the carrying amount of certain assets. These calculations are made on the basis of established principles and are not included in the opening accounts of the Group's legal entity, nor do they affect cash flows.

Fair value is estimated according to the International Private Equity and Venture Capital Valuation Guidelines. According to these guidelines, fair value can be calculated using different methods, depending on which is considered to provide the best estimate of market value in each case. For Karolinska Development, this means that the fair value of many portfolio companies is determined using a model to calculate the value of discounted and risk-adjusted cash flows. In other cases, Karolinska Development's total investment is used as the best estimation of fair value. In one other case, the valuation at the time of the last capital contribution is used.

Interim period: The period from the beginning of the financial year through the closing date.

Reporting period: Current quarter.

Note 2 Operating segments

The Board of Directors is the function that determines the allocation of resources to investments in portfolio companies and to the Parent Company. The Board of Directors monitors each investment at the project level as well as the Parent Company's results and financial position.

Karolinska Development's investments are primarily steered to companies that yield the best returns. Regardless of a project's maturity, therapeutic area and whether the company is active within pharmaceuticals or medical technology, each company's projects are evaluated by Karolinska Development in the same manner, because of which Karolinska Development has aggregated all the portfolio companies into a single reportable segment.

Karolinska Development's measure of profit is the aggregate change in the fair value of its shares in the portfolio companies, including those consolidated as subsidiaries. The Board of Directors and management monitor the investments based on changes in their fair value independently of the company's level of influence. Consequently, the Board of Directors and management monitor subsidiaries, associated companies, joint ventures and other holdings based on changes in their fair value and not on their historical acquisition costs as subsidiaries recognized in the consolidated financial statements. The accounting principles applied in the internal reporting otherwise correspond to the Group's accounting principles as described in Note 1.

Profit/loss per segment and reconciliation between aggregate result from change in fair value of portfolio companies and consolidated loss before tax

Profit/loss from change in fair value of
portfolio companies
2012 2011 2011
Amounts in SEK 000 Jan-Mar Jan-Mar Full-year
Subsidiaries
Change in fair value 18,891 4,241 67,819
Joint ventures and associated companies
Change in fair value -62,383 -8,535 -118,789
Impairment losses 0 0 -117,832
Other long-term securities holdings
Change in fair value -199 -3,791 -4,675
Impairment losses 0 0 -2,500
Change in fair value of total portfolio holdings -43 691 -8 085 -175,977
Group eliminations
Less change in fair value of subsidiaries -18 891 -4 241 -67,819
Net loss from changes in fair value -62,582 -12,326 -243,796
Consolidated revenue and other expenses (including
financial net) -29,198 -28,753 -161,864
Consolidated loss before tax -91,780 -41,079 -405,660

The aggregate loss from changes in the fair value of the portfolio companies amounted to SEK -43.7m (-8.1) during the first quarter after accounting for a positive change in the fair value of subsidiaries of SEK 18.9m (-4.2). The change in the fair value of subsidiaries is not recognized in the consolidated income statement or balance sheet, since the subsidiaries are consolidated and therefore are not measured at fair value. The Group's net loss from changes in the fair value of joint ventures, associated companies and other long-term securities holdings amounted to SEK -62.6m (-12.3).

Assets per segment

Fair value of portfolio companies
Amounts in SEK 000 31 Mar 2012 31 Mar 2011 31 Dec 2011
Fair value of total portfolio holdings
Subsidiaries 603,592 231,349 542,001
Joint ventures and associated companies 953,164 1,199,924 980,276
Other long-term securities holdings 24,388 30,598 24,587
Fair value of total portfolio holdings 1,581,144 1,461,871 1,546,864
Less fair value in subsidiaries -603,592 -231,349 -542,001
Group 977,552 1,230,522 1,004,863

Shares in portfolio companies at fair value

Joint ventures/
Associated
Other long
term
Total portfolio
Amounts in SEK 000 Subsidiaries companies securities holdings
Accumulated fair value
Opening balance at 1 Jan 2011 209,108 1,220,791 24,761 1,454,660
Acquisitions during the year 18,000 14,688 3,002 35,690
Reclassifications 0 -6,626 6,626 0
Sale of shares 0 -20,394 0 -20,394
Changes in fair value and impairment losses 4,241 -8,535 -3,791 -8,085
Closing balance at 31 March 2011 231,349 1,199,924 30,598 1,461,871
Opening balance at 1 Jan 2011 209,108 1,220,791 24,761 1,454,660
Acquisitions during the year 83,711 209,955 3,915 297,581
Reclassifications 182,173 -185,799 3,626 0
Sale of shares -810 -28,050 -540 -29,400
Changes in fair value and impairment losses 67,819 -236,621 -7,175 -175,977
Closing balance at 31 Dec 2011 542,001 980,276 24,587 1,546,864
Opening balance at 1 Jan 2012 542,001 980,276 24,587 1,546,864
Acquisitions during the year (Note 7) 42,700 35,271 0 77,971
Changes in fair value 18,891 -62,383 -199 -43,691
Closing balance at 31 March 2012 603,592 953,164 24,388 1,581,144
Amounts in SEK 000 31 Mar 2012 31 Mar 2011 31 Dec 2011
Aggregate fair value of total portfolio holding 1,581,144 1,461,871 1,546,864
Less fair value of consolidated subsidiaries -603,592 -231,349 -542,001
Other consolidated assets 1,274,732 506,757 1,340,996
Consolidated total assets 2,252,284 1,737,279 2,345,859

Note 3 Financial net

Group
2012 2011 2011
Amounts in SEK 000 Jan-Mar Jan-Mar Full-year
Interest income 874 387 6,247
Interest expenses -12 -22 -36
Change in value of short-term investments 3,271 391 10,036
Exchange rate gains and losses -735 -215 -2
Impairment of receivables from joint ventures and
associated companies
0 0 -21,230
Financial net 3,398 541 -4,985
Parent Company
2012 2011 2011
Amounts in SEK 000 Jan-Mar Jan-Mar Full-year
Interest income 582 360 5,017
Interest expenses 0 0 -6
Change in value of short-term investments 3,271 391 10,036
Exchange rate gains and losses 0 -215 0
Impairment of receivables from joint ventures and
associated companies
0 0 -21,230
Financial net 3,853 536 -6,183

Note 4 Shares in subsidiaries, joint ventures, associated companies and other long-term securities holdings

The Group's holdings of shares in portfolio companies

Total ownership interest, %¹
31 Mar 2012 31 Mar 2011 31 Dec 2011
Subsidiaries
Actar AB 100.00 99.96 100.00
Axelar AB 45.29 - 40.03
ClanoTech AB 87.39 86.32 86.94
Daffodil AB (dormant) 100.00 - -
HBV Theranostica AB (dormant) 100.00 - -
Inhalation Sciences Sweden AB 72.11 68.75 72.11
KCIF Fund Management AB 37.50 37.50 37.50
KD Incentive AB 100.00 100.00 100.00
KDev Oncology AB 100.00 100.00 100.00
Akinion Pharmaceuticals AB 88.09 83.39 88,09
GliGene AB 10.04 - 10,04
Limone AB 100.00 100.00 100.00
NovaSAID AB 88.91 88.15 88.91
Pharmanest AB 58.89 51.91 56.53
Joint ventures
Aprea AB 41.12 42.08 41.12
Athera Biotechnologies AB 64.57 62.04 62.19
Avaris AB 85.03 68.40 68.40
BioChromix Pharma AB 68.77 54.31 68.49
Bioneris AB (in liquidation) 26.31 26.31 26.31
Biosergen AS 60.26 50.97 60.26
Dilafor AB 54.76 54.02 54.76
Dilaforette Holding AB 62.12 - 57.96
Dilaforette AB 62.12 - 57.96
HBV Theranostica AB (dormant) - 70.73 72.52
IMED AB (divested) - 57.38 -
Lipidor AB 39.98 30.01 39.98
NeoDynamics AB 21.45 22.58 25.74
Oncopeptides AB 43.36 42.32 43.36
OncoReg AB (liquidated) - 88.91 -
Pergamum AB 61.93 59.81 61.93
Laurantis Pharma OY 6.07 5.86 6,07
DermaGen AB 61.93 59.81 61,93
Lipopeptide AB 61.93 59.81 61,93
PharmaSurgics in Sweden AB 61.93 59.81 61,93
ProNoxis AB 21.76 14.16 19.83
Umecrine Cognition AB 54.17 46.25 54.17
Umecrine Mood AB 42.87 47.46 42.87
XSpray Microparticles AB 60.80 59.81 60.80
Associated companies
Axelar AB - 44.98 -
KCIF Co-Investment Fund KB 26.00 26.00 26.00
Oss-Q AB 15.63 - 15.69
Promimic AB 29.01 24.50 24.50
Other long-term securities holdings
BioArctic NeuroScience AB 3.17 3.17 3.17
BioChromix AB 9.34 8.00 9.34
BioResonator AB (in liquidation) 7.62 7.62 7.62
CytoGuide ApS 9.06 9.06 9.06
Independent Pharmaceutica AB (liquidated) - 5.98 -
NephroGenex Inc. 0.58 0.58 0.58
Umecrine AB 10.41 10.41 10.41

¹ Including indirect ownership through KDev Oncology AB, Dilaforette Holding AB, Pergamum AB, KCIF Co-Investment Fund KB, BioChromix AB and Umecrine AB

Book value in Parent Company

Book value in Parent Company
Amounts in SEK 000 31 Mar 2012 31 Mar 2011 31 Dec 2011
Subsidiaries
Actar AB 12,197 6,844 3,679
Axelar AB 73,343 - 48,343
Clanotech AB 39,194 34,695 37,194
Daffodil AB (dormant) 50 - -
HBV Theranostica AB (dormant) 0 - -
Inhalation Sciences Sweden AB 24,238 19,738 24,238
KCIF Fund Management AB 43 43 43
KD Incentive AB 200 100 200
KDev Oncology AB 49,070 0 1,000
Akinion Pharmaceuticals AB - 28,070 48 070
Limone AB 1,858 1,500 296
NovaSAID AB 74,407 66,407 74,407
Pharmanest AB 18,725 7,776 15,075
Total book value subsidiaries 293,325 165,173 252,545
Joint ventures
Aprea AB 46,199 39,629 46,199
Athera Biotechnologies AB 93,787 66,037 74,797
Avaris AB 0 53,650 0
BioChromix Pharma AB 19,350 9,350 19,350
Bioneris AB (in liquidation) 0 0 0
Biosergen AS 21,370 15,114 21,370
Dilafor AB 88,831 83,831 88,831
Dilaforette Holding AB 17,188 - 7,188
Eribis AB - 10,970 -
HBV Theranostica AB (dormant) - 2,190 0
IMED AB (divested) - 45,307 -
Lipidor AB 9,000 4,003 9,000
NeoDynamics AB 11,097 7,551 11,097
Oncopeptides AB 22,914 18,536 22,914
OncoReg AB (liquidated) - 0 -
Pergamum AB 210,850 103,014 210,850
ProNoxis AB 6,500 3,000 5,500
Umecrine Cognition AB 14,700 7,000 14,700
Umecrine Mood AB 25,112 21,253 25,112
XSpray Microparticles AB 33,708 27,872 33,708
Associated companies
Axelar AB - 28,342 -
KCIF Co-Investment Fund KB 12,791 7,439 10,527
Oss-Q AB 3,650 - 3,650
Promimic AB 11,100 8,100 8,100
Total book value joint ventures and associated companies 648,147 562,188 612,893
Total fair value joint ventures and associated companies 953,164 1,199,924 980,276
Other long-term securities holdings
BioArctic NeuroScience AB 600 600 600
BioChromix AB 2,374 2,002 2,374
BioResonator AB (in liquidation) 0 2,500 0
CytoGuide ApS 3,300 3,300 3,300
Independent Pharmaceutica AB (liquidated) - 0 -
NephroGenex Inc. 709 709 709
Umecrine AB 7,398 7,398 7,398
Total book value other long-term securities holdings 14,381 16,509 14,381
Total fair value other long-term securities holdings 24,388 30,598 24,587

Note 5 Changes in share capital

The number of shares has changed as follows:

Year Transaction Number of
shares
Increase in
share capital
Share
capital
Number
of A
shares
Number of
B shares
Subscription
price
Par
value
Total as of 1 Jan 2011 33,331,417 16,665,709 1,503,098 31,828,319 0.5
New share
April 2011 issue 15,200,000 7,600,000 24,265,709 15,200,000 40 0.5
Total as of 31 Dec 2011 48,531,417 24,265,709 1,503,098 47,028,319 0.5
Total as of 31 Mar 2012 48,531,417 24,265,709 1,503,098 47,028,319 0.5

Calculation of net asset value

Group
Amounts in SEK 000 31 Mar 2012 31 Mar 2011 31 Dec 2011
Net assets
Cash and cash equivalents 171,513 141,841 163,347
Short-term investments 362,204 78,633 457,249
Loans receivable joint ventures and associated companies 26 715 86,162¹ 3,675
Financial liabilities -2,000 -2,000 -2,000
Total net assets 558,432 304,636 622,271
Estimated fair value of portfolio companies including subsidiaries 1 581 144 1 461 871 1,546,864
Total net asset value 2,139,576 1,766,507 2,169,135
Number of shares 48,531,417 33,331,417 48,531,417

Net asset value per share* 44.09 53.00 44.70 *Definition: Estimated fair value of the total portfolio holding, cash and cash equivalents, short-term investments and financial assets less interestbearing liabilities in relation to the number of shares outstanding on the closing date.

¹ The amount includes a restricted account with a balance of SEK 2,837 thousand. In the balance sheet, the amount is included in other current receivables.

Note 6 Pledged assets and contingent liabilities

Karolinska Development has entered into an investment commitment of SEK 25.0m related to Axelar AB. Additional financing commitments in portfolio companies also relate strictly to Axelar AB.

Group
Amounts in SEK 000 31 Mar 2012 31 Mar 2011 31 Dec 2011
Pledged assets
Restricted account 0 2,837 0
Endowment insurance 2,178 1,692 2,080
Total pledged assets 2,178 4,529 2,080
Investment commitments
Biocelex 0 1,500 500
Uminova 200 400 400
Other contingent liabilities
Axelar 26,000 0 26,000
Total contingent liabilities 26,200 1,900 26,900
Total 28,378 6,429 28,980

Note 7 Investments in portfolio companies

2012 2011 2011
Amounts in SEK 000 Jan-Mar Jan-Mar Full-year
Investments in subsidiaries
Actar AB 10,000 0 2
Akinion Pharmaceuticals AB 0 10,000 30,000
Axelar AB 25,000 0 20,000
Clanotech AB 2,000 0 2,499
Daffodil AB 50 0 0
Inhalation Sciences Sweden AB 0 2,500 7,000
KD Incentive AB 0 0 100
KDev Oncology AB 0 0 1,000
Limone AB 2,000 1,500 3,000
NovaSAID AB 0 4,000 12,000
Pharmanest AB 3,650 0 8,110
Total investments in subsidiaries 42,700 18,000 83,711
Investments in joint ventures and associated companies
Aprea AB 0 5,900 12,470
Athera Biotechnologies AB 18,991 0 8,760
Avaris AB 0 1,800 1,800
BioChromix Pharma AB 0 0 10,000
Biosergen AS 0 0 6,256
Dilafor AB 0 4,000 9,000
Dilaforette Holding AB 10,000 0 7,188
Eribis Pharmaceuticals AB 0 0 2,490
HBV Theranostica AB 0 0 200
KCIF Co-Investment Fund KB 2,280 2,760 5,834
Lipidor AB 0 0 4,997
NeoDynamics AB 0 0 3,546
Oncopeptides AB 0 0 4,378
Oss-Q AB 0 0 3,650
Pergamum AB 0 228 108,065
Promimic AB 3,000 0 0
ProNoxis AB 1,000 0 2,500
Umecrine Cognition AB 0 0 7,700
Umecrine Mood AB 0 0 5,286
XSpray Microparticles AB 0 0 5,835
Total investments in joint ventures and associated companies 35,271 14,688 209,955
Investments in other long-term securities holdings
BioChromix AB 0 2,002 2,915
Umecrine AB 0 1,000 1,000
Total investments in other long-term securities holdings 0 3,002 3,915
Total investments 77,971 35,690 297,581

Investments not affecting cash flow during the period

2012 2011 2011
Amounts in SEK 000 Jan-Mar Jan-Mar Full-year
Conversions of previously issued loans
Aprea AB 0 5,900 5,900
Biosergen AS 0 0 2,425
Dilaforette Holding AB 0 0 4,000
NeoDynamics AB 0 0 546
Oncopeptides AB 0 0 4,378
Pergamum AB 0 0 77,629
Total investments not affecting cash flow during the period 0 5,900 94,878

Note 8 Related parties

During the reporting period, the Group did not have any material transactions with or commitments to related parties beyond the normal business transactions described in the annual report for 2011 and as indicated in Note 6.

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